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| Gold bars are displayed at an office of the Korea Gold Exchange in Seoul in this file photo. Yonhap |
By Lee Min-hyung
Gold will once again regain investors' attention in the latter half of this year, as demand for safe and alternative assets other than stocks, will stay solid amid lingering inflationary woes and monetary uncertainties here and abroad, analysts say.
Acting on this demand, the Korea Exchange (KRX) has decided to unveil its KRX Gold Leverage Index from Aug. 22. Investors can get twice the returns, if the gold price in the spot market increases, and vice versa, the exchange said.
The exchange expects the launch of the index to meet the demand for investing in gold during this period of financial uncertainty, which has been sparked by soaring inflation and the underwhelming performance of stocks.
The KRX gold market is one of the easiest ways for investors to purchase gold as an investment. Gold prices hit a new high this year of around 80,000 won per gram in early March but have since extended their volatile ups and downs due to the U.S. Fed's aggressive rate hikes. Global monetary tightening has decreased demand for gold to some extent, on the growing preference for the U.S. dollar as one of the safest assets in the world.
However, as global monetary authorities recently displayed hints of a slowdown in the pace of aggressive rate hikes amid concerns of a possible recession, the gold price has been on track to rebound for the past few weeks. The price of gold hit a five-month low of 71,048 won per gram on July 21, but it has since recovered to around 75,000 won as of Wednesday.
Market analysts advised investors to increase their investment in gold in their asset portfolio by taking advantage of the ongoing price adjustment.
"Investors are advised to maintain a strategy of purchasing gold in this period of price adjustment due to the likelihood of a decrease in the long-term interest rate and lingering demand to hedge against inflation and the preference for safer assets," Chun Kyu-yeon, an analyst at Hana Securities, said.
On top of that, the Fed is unlikely to maintain its hawkish monetary stance after September, and the authority will likely shift to a baby-step increase in its key rate by just 25 basis points, according to the economist. This move will increase demand for the dollar as well as gold ― even if fewer investors pay attention to gold ― for the time being, the expert pointed out.
Data also showed that the gold transaction volume has been on the rise for the past few years. The daily gold transaction volume in the KRX gold market came in at 19.581 kilograms in 2018, but it has since been on a steep rise to 114 kilograms in 2021. The figure during the first half of 2022 also remained solid at 111.747 kilograms.
An official at the Korea Exchange said it has decided to launch the gold leverage index in reaction to the growing demand from the market.
"The index will help activate the local gold market amid the rising interest in safer assets here and abroad," the official said.
Edward Moya, a senior market analyst at OANDA, a foreign exchange company, said future gold price movements will be determined by the Fed's upcoming moves.
"All eyes will be on the Fed's minutes, which will likely confirm that we need to see the next labor and inflation data before making the call that the Fed can go at a slower pace of tightening," he said. "Gold will probably remain range-bound until it is clear which way market expectations are leaning towards, either a half-point increase or another 75-basis-point raise."
